POLITICKÉ VEDY / POLITICAL SCIENCES

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1 POLITICKÉ VEDY / POLITICAL SCIENCES Časopis pre politológiu, najnovšie dejiny, medzinárodné vzťahy, bezpečnostné štúdiá / Journal for Political Sciences, Modern History, International Relations, security studies URL časopisu / URL of the journal: Autor(i) / Author(s): Článok / Article: Igor Kosír - Ivana Slobodníková - Jana Orlická The Most Important Factors of Efficiency of Flexible Exogenous Integration to the EU on Ukrainian Example Vydavateľ / Publisher: Fakulta politických vied a medzinárodných vzťahov UMB Banská Bystrica / Faculty of Political Sciences and International Relations UMB Banská Bystrica Odporúčaná forma citácie článku / Recommended form for quotation of the article: KOSÍR, I. - SLOBODNÍKOVÁ, I. - ORLICKÁ, J The Most Important Factors of Efficiency of Flexible Exogenous Integration to the EU on Ukrainian Example. In Politické vedy. [online]. Roč. 19, č. 2, ISSN , s Dostupné na internete: < Poskytnutím svojho príspevku autor(i) súhlasil(i) so zverejnením článku na internetovej stránke časopisu Politické vedy. Vydavateľ získal súhlas autora / autorov s publikovaním a distribúciou príspevku v tlačenej i online verzii. V prípade záujmu publikovať článok alebo jeho časť v online i tlačenej podobe, kontaktujte redakčnú radu časopisu: politicke.vedy@umb.sk. By submitting their contribution the author(s) agreed with the publication of the article on the online page of the journal. The publisher was given the author s / authors permission to publish and distribute the contribution both in printed and online form. Regarding the interest to publish the article or its part in online or printed form, please contact the editorial board of the journal: politicke.vedy@umb.sk.

2 THE MOST IMPORTANT FACTORS OF EFFICIENCY OF FLEXIBLE EXOGENOUS INTEGRATION TO THE EU ON UKRAINIAN EXAMPLE Igor Kosír - Ivana Slobodníková - Jana Orlická ABSTRACT Ukraine has a special more than 3 years' experience of free trade regime with the CIS countries, being only CIS associate member. Ukraine joined CISFTA in Efficiency of this flexible exogenous integration was low, mainly due to complicated bilateral relations with Russia. Aiming to reach a successful development of a flexible exogenous integration in the EU Eastern neighbourhood the new EU initiative was launched in May 2009: EU Eastern Partnership, and Ukraine (UA) became then one of EU strategic partners among six ex-soviet republics. EU successfully negotiated and finally signed the Association Agreements including DCFTA part on a creation of a free trade regime between the partners with 3 of them: Ukraine, Georgia and Moldova in The article aims to analyse Ukrainian flexible exogenous integration to the EU, with focus on economic environment, trade and key elements for future efficiency, as well as impact on economy and society of the country. Although, de iure Ukrainian flexible exogenous integration to the EU started in 2014, de facto the process started on 1 January Taking into account following decision, Ukrainians chose their orientations towards the EU integration, leaving bilateral relations with Russia in question. In conclusion, for Ukraine to retain the highest possible efficiency in building flexible exogenous integration, it will have to implement EU acquis communautaire legal system and build its institutions using EU rules. Prof. Ing. Igor Kosír, PhD. is a Professor at the Department of International Relations and Diplomacy, Faculty of Political Science and International Relations, Matej Bel University in Banská Bystrica, Kuzmányho 1, Banská Bystrica, Slovak Republic, igor.kosir@umb.sk. Mgr. Ivana Slobodníková is a PhD. student of the Department of International Relations and Diplomacy, Faculty of Political Science and International Relations, Matej Bel University in Banská Bystrica, Kuzmányho 1, Banská Bystrica, Slovak Republic, ivana.slobodnikova@umb.sk. RNDr. Jana Orlická is a PhD. student of the Department of International Relations and Diplomacy, Faculty of Political Science and International Relations, Matej Bel University in Banská Bystrica, Kuzmányho 1, Banská Bystrica, Slovak Republic, jana2013@gmail.com. 177

3 Key words: flexible exogenous integration, deep and comprehensive free trade agreement, free trade area, the higher order integration, economic growth, competitiveness, EU, DCFTA Introduction The beginning of the year 2016 plays a very important role for a new Ukraine's conventional instrument, which strategically affected the country's relationship to the EU. The Deep and Comprehensive Free Trade Agreement 1 is an important component of the Association Agreement between the EU and UA, one of the EU's most ambitious bilateral agreements yet. Since the end of June 2014 there were many discussions on its comprehensive content, trade policy conditions as well as reality of implementation of it into the EU-UA bilateral economic relations practice: in UA itself, in EU member countries, in Russia, and in other countries, too. The DCFTA will offer Ukraine a framework for modernising its trade relations and for economic development by the opening of markets via the progressive removal of customs tariffs and quotas, and by a gradual harmonisation of laws, norms and regulations with EU standards. At the beginning of the year 2016, this agreement came into force. The article aims to analyse the continental trade and economic environment development as well as the most important elements of a future efficiency of this new stage of Ukraine's cooperation with the mainstream unit of European integration including the impact on economy and society of the country. 1 Process of international economic integration in Europe and phenomenon of flexible exogenous integration The process of international economic integration is strongly linked with enormous development of the post-war international trading based on the creation of efficient multilateral trading system (MTS) of internationally negotiated, accepted and valid set of principles and rules of international trading, permanently being enlarged (Vinter, 1950; Tinbergen, 1953; Balassa, 1966). An ideal benchmark of MTS was a free trade regime in international trading. 1 Realising all components (articles, paragraphs ) goals of this agreement the both parties will build bilateral Deep and Comprehensive Free Trade Area in real trade and investment practice as well as in broader economic one of bilateral relations. 178

4 The most valuable and long-term positive gains in the post-war international economic relations' progressive development was impacted by the successful negotiating and finally signing the General Agreement on Tariffs and Trade in Geneva in trade policy expert teams of the participating countries decided by this new approach in international trade policy 2 to create a new internationally important and perspective globally functioning system of principles and rules of international trading. It was a very important step, truly historical. More than 40 thousand customs concessions were reached during these first multilateral negotiations (GATT Geneva round) in (See also Beneš, 1988 as well as Fiftieth Anniversary..., 1996) Among the temporary MTS (GATT) 23 founders, there were several EEC (later ECs or nowadays EU 3 ) founders or later full EU members: Great Britain, France, Belgium, the Netherlands, Luxembourg, Czechia and Slovakia (then Czecho-Slovakia ). These nations took active part in relatively separated 123 Geneva negotiations that resulted in 20 identified trade policy areas. In all these areas the important reducing of customs duties was reached. It was a final basis for the content of the future text as well as appendixes of GATT until now the most recognised multilateral trade treaty in the history of international trading and developing of foreign commercial policies of nations. Then traditional trading powers contributed to the impressive result of these negotiations of the first Geneva GATT round (April October 1947): approximately 45 thousand tariff concessions of total value of 10 billion USD were reached. 4 The MTS was created and valid as well as functioning from It was not an institutionalised MTS as was predicted by the U.S. original project of 2 This new approach was identified with using the trade policy method of multilateralism (not more bilateralism as priority No. 1 method in the past) combined by a freetradism as a new progressive trade policy principle (implemented internally and promoted strongly internationally by Cordell Hull, U.S. Secretary of State ). 3 The first European complex integration unit was the European Economic Community, established in Rome on 25 March 1957, followed by European Communities (Brussels Merger Treaty came into force on 1 July 1967) and nowadays European Union (Maastricht treaty or officially Treaty on European Union came into force on 1 November 1993 and since 1 December 2009 the EU is the sole symbol of the mainstream wave of European integration. This day the Lisbon treaty of 2007 came into force, modifying this Treaty on European Union as well as presenting the Treaty on functioning of European Union.). 4 The building of the third institutional pillar of the world economy was started in parallel to the existing two Bretton-Woods institutions: World Bank (originally only International Bank for Reconstruction and Development, now the larger World Bank Group) and International Monetary Fund. 179

5 International Trade Organization from the beginning but was a temporary system. 5 The GATT played this role during a period of more than four decades - since 1948 until The 3 rd pillar of the world economy World Trade Organization was established and functioning as a result of 1994 Marrakesh GATT conference ending the last 8 th (Uruguay) GATT round of trade policy negotiations in Morocco. WTO new institutionalised MTS is functioning since the beginning of Naturally, the first post-war year's increase of the world trade value (in export as well as in import) was impressive: 50%, followed by other interesting increasing of the world trade value in 1947 by 22%. The MTS orientation to trade facilitation and liberalisation influenced positively an increasing of the world trade value as well as volume during following years, too. During 55 years until 2000 the end of the 20 th Century as well as of the second millennium the world trade development was impacted only by two more important crisis 6 but not comparable with the Great Depression of the 1930s. This positive development was sustainably impacted by the new phenomena in international relations: a key foreign trade policy priority - free trade as well as an international economic integration (IEI), too. Balassa linked this process with an elimination of existing customs tariffs and the other trade barriers and obstacles, describing firstly two stages of trade integration free trade area and customs union. 7 The IEI process contributed a lot to a creating of much stronger and deeper interdependence in international relations of the post-war period. Within the integration groupings there was and still is the most intensive and the deepest reached level of an economic liberalisation process. The economic relations between the companies of two members of integration unit were developing in the framework of the same system of economic policy conditions as there had within one national economy system. 5 U.S. administration rejected the results of 1948 Havana U.N. conference on trade and employment and then agreed ITO Havana Charter, which was modified in comparison with original U.S. draft of its text... 6 The world trade development was impacted for the first time since 1945 by important crisis only during the first petroleum shock ( ). It led to a creation of a global coordination group G6 (1975 USA, Japan, Great Britain, Germany, France, Italy) in Paris, being transformed to G7 in 1976 (an accession of Canada) and to G8 in 1997 (an accession of Russia). The second petroleum shock ( /82) influenced negatively the development of the world trade, too. 7 The definitions of a free trade area as well as a customs union were presented in the basic text of the new temporary MTS: in the GATT Article XXIV in 1947 (as well as in the GATT 94 Article XXIV). 180

6 However, the existing integration groupings did not represented the closed economic systems. They wanted to be stronger and stronger, larger and larger, relatively open and parallel with the processes of deepening and widening integration. The enlargement process of these integration units as well as a flexible exogeneous integration, aiming for and supporting a creation of a stable and cooperative neighbourhood, were realised, too. The dominant centres of economic power (USA and European Communities 8 ) tried to build influential and prospectively dominant continental economic complexes 9 step by step, enlargement by enlargement. The Russian Federation tried to reintegrate the disintegrated Soviet economy after 1991 and to create an important Euro-Asian economic complex: initially in the framework of 12 ex-soviet economies and states being named the Commonwealth of Independent States (CIS), later in the framework of a new project of a customs union (CU). The first framework in the establishment of CU was created by EurAsEC (Eurasian Economic Community). The trilateral customs union of EurAsEC (Russia-Belarus-Kazakhstan) was established in July At the end of May 2014, Astana trilateral summit of the EurAsEC approved 8 The second largest national economy in the world economy system Japan was not involved in the process of creating system of IEI linkages for a long period of time. Nevertheless, Japan was very successful in concentration on national economy development including its results in international trading. The institutional symbol of it was the famous MITI then Ministry of International Trade and Industry (now it is the Ministry of Economy, Trade and Industry - METI). 9 EU realised during the four decades several enlargement waves: 1973 Northern enlargement, 1981 Hellenic enlargement, 1986 Iberic enlargement, 1995 EFTA enlargement, 2004 and 2007 Central Eastern Europe and Mediterranean enlargement and 2013 Croatian enlargement. Mainstream European integration unit initiated a creation of the higher order integration of two integration units (EU + EFTA) in European Economic Area There are several examples of the EU flexible exogenous integrations on a customs union level (Turkey, Andorra, San Marino, Monaco) as well as on a free trade area level (Korea functioning, Singapore and Vietnam negotiations terminated, other ASEAN members, India, GCC, MERCOSUR being negotiated). There is as well an ongoing negotiation process on a creation of the biggest free trade area within the world economy EU-USA in the framework of the Transatlantic Trade and Investment Partnership (TTIP). USA signed firstly CUSFTA with Canada (1988), later NAFTA (included Mexico, too in 1992). It led to the project elaboration of FTAA (Free Trade Area of the Americas a free trade project for 34 Western hemisphere countries) negotiated ( ) and interrupted later. Now, during the second decade of the 21 st Century, the U.S. have intention to contribute to a creation of two globally important big free trade areas: one under the umbrella of TTIP, and the second in the framework of negotiated TPP (Transpacific Partnership) with 11 U.S. Asia-Pacific partners (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam). TPP agreement was signed on 4 February 2016 in Auckland, New Zealand. 181

7 a transformation of this integration unit into a new one: Eurasian Economic Union (EEU). 10 The Astana Treaty establishing the EEU came into effect on 1 January EEU has now five full members (including Armenia and Kyrgyzstan). IEI is a very dynamic process and namely during the 1990s and 2000s it achieved many successes, dynamic developments and inspirations. In the era of globalisation, IEI is representing the most intensive islands of economic internationalisation within the world economy and community. IEI became a part of our continental culture. Of course, this project experienced the negative periods of its development, too. They were linked namely with the artificial accelerations of this process, not supported and approved by the citizenship... According Otília Zorkóciová, the culture is all what people have (i. e. material ), what they created, what they think (through this activity the ideas, values and positions are creating), what they do and what they deal with as the members of a certain concrete society (i. e. they act usually in the framework of some norms) (Zorkóciová, 2007, p. 39). Namely European integration process in its mainstream wave (EU) as well as in its parallel wave (European Free Trade Association) contributed enormously to the European culture of globalisation. 1.1 EU flexible exogenous integration The other factors supporting this tendency do exist and are developing in the framework of several different forms of the EU flexible exogenous integration. This one is representing an integration of EU non-member country (countries) with EU on one or two levels (stages) of IEI now, on a free trade area level but there are the exemptions, too: The European Economic Area functioning as the higher order integration of two existing European integration units (EU + EFTA) with a small modification (adopting the special Swiss model of integration after the negative result of the Swiss referendum on the Swiss EEA membership on 6 December 1992). EEA now = EU + EFTA CH (Switzerland). 11 EFTA 3 (Norway, Iceland and Liechtenstein) as well as Switzerland are integrated with EU on the level of 10 The Astana Treaty establishing the EEU was signed on 29 May On the second day of its existence in trade and economic practice (January 2, 2015) Armenia joined EEU and Kyrgyzstan membership was realised in May In 2016: EEA 31 = EU28 + EFTA 4 CH

8 a free trade area and a common market (See: Figure 1, EU and EFTA column). Integrating the Turkish economy with EU by implementing the Customs Union Agreement (CUA) since the end of 1995 / beginning of The similar form of the flexible exogeneous integration with EU is represented by the cases of San Marino, Monaco and Andorra integration. All these three European micro-states national economies are integrated with the EU 28 economy on a customs union level. A similar form of the flexible exogeneous integration, but on a free trade area level, is represented by EMFTA project (still not realised) 12 supporting the Euro- Mediterranean Partnership (EMP) in the framework of Barcelona process since the end of 1995 and currently in the framework of the Union for the Mediterranean (UFM 43/42) as well. 13 The conventional basis of this project is represented by the Euro-Mediterranean Association Agreement (EMAA). The project CEFTA II being linked with the South-Eastern region of our continent (namely with the Western Balkans countries) had the very similar aspects and aims, too. The most successful of former CEFTA II members (as well as of CEFTA I, 14 located in Central Europe) is Croatia, the newest full EU member since 1 July As a result of the developments in former Yugoslavian territory (civil war tragedies), the basic conventional instrument of this potential flexible exogeneous integration, elaborated by EU experts and aiming to assist a basic FTA integration with EU, is a Stabilization and Association Agreement (SAA). The last one was signed between EU and Kosovo in EMFTA Euro-Mediterranean Free Trade Area was presented as an economic pillar of Barcelona process since the end of 1995 and was planned to be realised until This project was not successful. Now, there are several MENA region countries of really, very high level of instability, namely Libya and Syria. 13 Union for the Mediterranean (UFM) was established by the Paris conference of 43 countries representatives on 13 July It was a result of the 2007 initiative of then French president Nicolas Sarkozy (firstly during his presidential campaign). In 2011, Syria decided to withdrawal from UFM membership... There are not only EU 27 (now 28) members in UFM but also the countries of Northern Africa including Mauretania, of the Middle East area, including Israel and Palestine, Turkey, as well as the Western Balkans countries and Monaco. 14 CEFTA I (Central European Free Trade Agreement) was a result of the Central European summit of four Visegrád group countries (V4) in Krakow in Poland in After joining EU in May 2004 (V4 countries and Slovenia, all CEFTA parties), the other CEFTA parties as Bulgaria and Croatia continued under an umbrella of the new CEFTA II, being located in the Western Balkans region (including Kosovo) plus Moldova. The new CEFTA Secretariat was established. It is located in Brussels. 183

9 The similar project was linked with a launching the EU Eastern Partnership initiative (May 2009) aiming at the strengthening of trade and economic relations with several ex-soviet republics (Belarus, Ukraine, Moldova, Georgia, Armenia and Azerbaijan). The new Association Agreements (AAs) including Deep and Comprehensive Free Trade Agreements (DCFTAs) were signed in Brussels on June 27, 2014 with Ukraine, Moldova and Georgia. The Deep and Comprehensive Free Trade Areas (DCFTAs) were launched at the beginning of There are still the Partnership and Cooperation Agreements (PCAs) of the end of 1990s valid for other ex-soviet nations trade and economic relations development with EU, including EU-Russia relations. Figure 1. Forming European Economic Continental Complex Legend: AAs association agreements, AEEA Agreement on European Economic Area, BSAs bilateral sectoral agreements, CH Confédération helvétique = Swiss Confederation, CIS Commonwealth of Independent States, CM common market, CU customs union, CUA customs union agreement, DCFTA Deep and Comprehensive Free Trade Agreement (in practice: Area), EaP Eastern Partnership, ECs European Communities, EEA European Economic Area, EEU Eurasian Economic Union, EFTA European Free Trade Association, EMAAs Euro-Mediterranean association agreements, EMFTA Euro-Mediterranean Free Trade Area, EMU economic and monetary union / European Monetary Union (eurozone), FTA protocole protocole to the Free Trade Agreement, FTA free trade area, GE Georgia, IM internal market, MD Moldova, SAA stabilization and association agreements, SM single market, TR Turkey, UA Ukraine. 184

10 All these EU activities, European Economic Area as well as all mentioned forms of the flexible exogenous integration, are linked with: - a deeper trade and economic cooperation of one non-member country with European Union, - later with an association, a mutual free trade regime creation, - later with a potential status of EU candidate country, - later officially negotiating country on future full membership - later accession country (after successfully terminating of the negotiation process on full membership) - and, finally, the future European Union member. An original mainstream European integration grouping European Economic Community (EEC) was a perfect example of a model of homogeneous integration. All member states were more or less on the same economic development level (the OECD members an elite club of advanced or developed countries). There were able to reach all integration stages together stage by stage in the same moment. The situation in European mainstream IEI development has changed after the Hellenic enlargement of European Communities in January This enlarged integration unit (ECs 10) became a model of heterogeneous integration. It became more and more heterogeneous (thanks to the next Iberic enlargement in 1986 Portugal, former EFTA member, and Spain joined European Communities, as well as thanks to the Central Eastern European and Mediterranean enlargement (10+2 mostly former CMEA/COMECON members joined European Union in May 2004, and in January 2007, respectively), as well as the Croatian enlargement in July A creation of the large European Economic Continental Complex became the priority No. 1 for European strategists, not a forming of an integration block as a homogeneous integration model in the practice. The key role in it was identified as functioning single market, fully, largely and deeply integrating many national economies basic elements of heterogeneous integration unit, the elements of different economic situation, policy, potential, level and position in continental as well as world economy and, of course, of different perspectives. In comparisons of national accounts data - GDP per capita - of the EU member countries, EU candidate countries, the potential EU candidate 185

11 countries as well as EFTA 3 members 15 (37 countries of the mainstream as well as parallel wave of European integration together), it is desirable not only to express the figures in a EU common currency (EUR), but also to adjust for differences in price levels in selected mentioned national economies. Failing to do so would result in an overestimation of GDP levels for countries with high price levels, relative to countries with low price levels. Concerning heterogeneous mainstream European integration unit, the distribution in GDP per capita across the EU 28 member countries is quite remarkable: Luxembourg has the top position within EU 28 (and logically among all mentioned 37 countries) and Bulgaria, despite some improvement over the last several years, is still the poorest. Luxembourg has by far the highest GDP per capita (GDP per capita...) among all the 37 countries included in this comparison (IMF GDP/capita 2015: 103,187 USD), being more than two and a half times above the EU 28 average. One particular feature of Luxembourg's national economy, which to some extent explains the country's very high GDP per capita, is the fact that a large number of foreign residents are employed in the country and thus contribute to its GDP, while at the same time they are not included in the resident population. Luxembourg s global competitiveness index GCI 5,20 represents now (2015/2016) the 20 th best position in the world economy (Schwab - Sala-i-Martín 2015, p. XV). Luxembourg is the country with the highest level of Actual Individual Consumption (AIC) 16 per capita in the EU, too, 41 % above the average of the mainstream European integration unit. However, while Luxembourg can be said to belong to "a division of its own" in terms of GDP, this is less so for AIC. One reason for this is that cross-border workers contribute to GDP in Luxembourg while their consumption expenditure is recorded in the national accounts of the country of their residence. Ireland comes out second among the EU member countries (IMF GDP/capita 2015: 48,940 USD the 12 th global position), at 34 % above the EU 28 average followed by the Netherlands and Austria at around 30 % above that average. A competitiveness of these countries is very high, too: the Netherlands have the 5 th best GCI (5,50) in the world, Austria s GCI is 5,12 (23 rd best global 15 EFTA 3 means without Liechtenstein... (EFTA has 4 members since EU EFTA enlargement being realised at the beginning of the year 1995, Austria, Sweden and Finland joined EU): Norway, Switzerland, Liechtenstein and Iceland). 16 While GDP is mainly an indicator of the level of economic activity, Actual Individual Consumption (AIC) is an alternative indicator better adapted to describe the material welfare of households. 186

12 position), and Ireland s GCI 5,11 is representing now the 24 th global position. The EFTA member states Switzerland (IMF GDP/capita 2015: 82,178 USD the 2 nd best global position after Luxembourg) and Norway (IMF GDP/capita 2015: 76,266 USD the 4 th best global position after Qatar) have a higher level of GDP per capita, more than 60 % above the EU 28 average. Switzerland is, in parallel, the most competitive national economic complex within the world economy since Its GCI is 5,76 from maximum of 6,00. Norway s GCI is very high, too: 5,41 and is representing the 11 th best global position. Other EU member countries with a GDP per capita of more than 20 % above the EU 28 average are Denmark, Germany and Sweden. Belgium has a level of the GDP per capita at around 20 % above the average together with the EFTA member state Iceland. German GCI is the 4 th best in the world economy: 5,53, Swedish GCI: 5,43 (9 th ), and Denmark s GCI is 5,33 (12 th global position). Finland, the United Kingdom and France show GDP per capita levels of up to 10 % above the average. Concerning a competitiveness of these countries, the GCI is following: Finland reached the 8 th best global competitiveness: GCI 5,45 in Great Britain s GDP: 5,43 (10 th global position) and France: 22 th position with GCI 5,13. Italy and Spain are at GDP per capita of less than 10 % below the EU 28 average followed by Czechia, Malta, Slovenia and Cyprus with the level between 15 % and 20 % below the EU 28 average. The GDP level per capita of Portugal, Slovakia, Estonia, Lithuania and the Hellenic Republic is less than 30 % below that average (Slovakian IMF GDP/capita 2015 was 15,893 USD 44 th global position, GCI of Slovakia: 4,22 67 th global position). They are followed by Hungary, Poland and Latvia with GDP level less than 40 % below the average. The EU member countries Croatia and Romania followed by the EU candidate country Turkey have the GDP level less than 50 % below the EU 28 average while the EU member state Bulgaria is placed at 53 % below the EU average. Bulgaria records the lowest level of this indicator among all EU member states (IMF GDP/capita 2015: 6,582 USD, the 81 st global position). Bulgarian global competitiveness is the lowest among EU 28 member countries, too: GCI 4,32 (54 th global position, more or less the same as Romania, the 53 th ). Romanian IMF GDP/capita 2015 was 8,807 USD (68 th global position). The other EU candidate countries Montenegro, Serbia, Macedonia and Albania are between 60 % and 70 % below the EU 28 average. The potential candidate country Bosnia and Herzegovina is placed at 71 % below the EU 28 average (Schwab - Sala-i-Martín, 2015, p. XV). (See also GDP per capita..., 2016) 187

13 Of course, this heterogeneity of member economies (it is still, first of all, an IEI... but with the strengthened political features adopted during several last decades) can have not permanently only positive or neutral impacts on the integration process development. The Hellenic crisis, lasting for several years now and still representing a very topical daily issue, being mixed with the impacts of refugees crisis is a very good example of it. The forming a large economic continental complex is a very comprehensive process. It is possible to monitor and assess the similar trends to take place in the practice of international economic relations in other continents, too. Figure 2 The Structure of the World Economy and Community Source: Kosír, I., 2010 Legend: Model was updated to the situation of February 2016: G40 is represented advanced (developed) countries, 34 OECD members, 5 members of global coordination group BRICS as wel as Singapore, one of the most competitive national economies (Schwab Sala-i-Martín, 2015, p. XV). G48 is representing a group of the least developed countries (LDCs) within the world economy identified by UNO permanently. They are the poorest developing countries (DCs). In the framework of all DCs there are newly industrialised countries (NICs), too. NICs represent the most successful DCs in industrialization process. A special group of dynamically growing national economies is known as the new global coordination group BRICS Brazil, Russia, India, China and 188

14 South Africa. Namely China and India are considered as very perspective globally. During period it was only a virtual quadrilateral group BRICs identified by Jim O Neill of Goldman Sachs (O Neill, 2001). EU represents now a developing model of heterogeneous international economic integration. EU7 they are the new EU members (Malta, Cyprus, Latvia, Lithuania, Bulgaria, Romania, Croatia) but not OECD members parallelly (not yet). From 28 EU members there are 21 OECD members parallelly (original EU15 before 2004 enlargement + Visegrád group + Slovenia + Estonia). There are now 5 EU candidate countries (EU CCs), the 6 th Iceland resigned in Turkey is OECD member since the first year of its activities 1961 (the former EU CC Iceland, too). Additional four EU CCs are located in Western Balkans (Macedonia, Montenegro, Serbia and Albania). Among nations of top mini-pyramid there are all B4WT members (Big Four of the World Trade): China, European Union including its leader of foreign trade activities Germany, USA and Japan (International trade statistics 2015, pp ). G40 including the second most competitive economy - Singapore and EU7 countries are building knowledge society and economy, the countries of the middle of the pyramid - the most of the DCs are building industrial society and economy, the poorest DCs LDCs they are still living with a heritage of agricultural society and economy. The biggest progress in economic continental complex creation was reached in Europe. 17 Building stable and cooperative relations with all countries of the EU Northern, Eastern, South-Eastern as well as Southern neighbourhood is a part of EU vision of a peaceful and competitive future. A creation of the large European Economic Continental Complex including its stable and cooperative neighbourhood allows and shall allow the integrated Europe to play a much more important role in the world economy and community. Of course, this vision was much real at the beginning of this new millennium. Now, EU is too much concentrated on its internal issues, structures, developments, problems and it has to be. It is in one of the deepest crisis of its long history starting by BELUX creation in EU is geographically far from the priority No.1 world region (Asia-Pacific, including USA, Japan, China, Russia, ASEAN countries, Australia). EU Customs Union is functioning perfectly for 48 years (in 2016). Its Common Commercial Policy is an example for other European common 17 There were several other projects supporting this long-term aim. For example, then President of European Commission Romano Prodi declared on May 17, 2001 on the occasion of the Moscow Russia-EU summit together with Vladimir Putin, President of the Russian Federation, that EU and Russia agreed on a setting up a Common European Economic Space (CEES) as well as a Joint High-Level Working group to develop together this concept. 189

15 policies. Its basic instrument TARIC 18 - is a recognised and useful instrument of the transparent and very well-functioning European system of principles and rules of the external trade of European Union, being a strong pillar of EU internal market, too. Now, it is still facing the impacts of the ongoing Hellenic crisis. In addition, it is complicating by impacts of refugees crisis. The EMU system is still under evolution, development and adaptation to the new trends of the international financial relations and the international monetary system existing within the world economy. The Euro (EUR), a single European currency, is internationally as well as globally recognised and largely used in parallel with the global reserve currency US dollar (USD). 1.2 Flexible exogenous integration as a permanent feature of European integration process A special IEI form of flexible exogenous integration is a permanent feature of European integration process. Since the Hellenic enlargement of European Communities in 1981 it became to the existing dominant forms of IEI, in parallel with the higher order integration resulted in European Economic Area building in period, in several waves of ECs (EU) enlargements resulted finally in the enlargement of the mainstream European integration unit from 6 members to contemporary 28 members. The flexible exogenous integration is needed in a new situation in which not a homogeneous integration, but geopolitical dimension of continental integration process is a priority. Since the Hellenic enlargement, (1 January 1981) European mainstream integration grouping is increasingly heterogeneous. If the differences are very big between the main existing integration unit and the national economy of the country being in the conventional state of flexible exogenous integration with this unit and there is not an evident progress in a long-time, the period of flexible exogenous integration is longer and longer. The Turkish case is very interesting: the process of flexible exogenous integration of the national economy of Turkey and the mainstream wave of European integration (since November 1993 it is EU) started by signing the 1970 Protocol to Ankara association agreement (signed in 1963) supporting a creation of mutual free trade area (FTA). This flexible exogenous integration 18 TARIC = EU Common External Tariff le TARif Intégré Communautaire (fr.)... a key trade policy instrument of the Common Commercial Policy of European Union since July

16 level was improved by coming into force of the EU-Turkey Customs Union Agreement (CUA) at the end of Since 1999 EU December Helsinki summit, Turkey is officially EU candidate country (EU CC). The 2005 EU Vienna summit decided to open the official negotiations on future full membership of the country in the EU. The process is continuing, however, it is not very dynamic: 53 years passed since signing of the Ankara agreement (in 2016); 46 years passed since FTA common project development and 21 years passed since common CU project of flexible exogenous integration. There is another case: For Slovakia, the process of the flexible exogenous integration with European Union started on 16 December 1991 in the conventional framework of European Communities and the then Czech and Slovak Federative Republic (ČSFR). Then Europe Agreement on Association never came into effect. Czechoslovakia democratically disintegrated at the end of the year The Federal Assembly (Czecho-Slovak parliament) approved the dissolution of the Czecho-Slovak federation (and itself) in November 1992, and the two sides agreed on a civilised division of federal assets, and eventually also on the split of the monetary union later in ECs-ČSFR Europe Agreement on Association had to be renegotiated in two parts and one of them, the new EU-Slovakia s Europe Agreement on Association was signed on 4 October 1993 and came into force on 15 February Based on Copenhagen criteria approved in the Danish capital in 1993 Slovakia was preparing for a future EU membership. In 1997, Slovakia was classified as a member of the second group of EU candidate countries (with Bulgaria, Romania, Latvia and Lithuania), but after two years the country became a part of the fregata of the countries officially negotiating on the future full EU membership. The mutual EU-Slovak Free Trade Area was established during this period until the end of the year A real flexible exogenous integration was functioning on FTA level during the period May It was the first day of Slovakian EU membership and the end of the stage of flexible exogenous integration. Slovakia became one of the 25 EU members, fully integrated from the beginning in the EU s customs union as well as EU s common (single) market. Slovakia reached the highest level of IEI in the framework of the mainstream wave of European integration on 1 January 2009 by joining the monetary part of EU s economic and monetary union (Eurozone). Since December 1991 to May 2004, it was more than 12 years. 191

17 2 Ukraine as a part of flexible exogeneous integration Ukrainian SSR was one of the most important republics of the Soviet 15 republics' federation. The country was impacted enormously by all tragedies of the WWII and became one of 51 founders - original members of the United Nations Organization together with Soviet Union (USSR) and Byelorussian SSR (San Francisco 1945). After Russia, the Ukrainian Soviet Socialist Republic was the most important economic component of the former USSR, producing about four times the output of the next-ranking republic. Its fertile black soil generated more than one-fourth of Soviet agricultural output, and its farms provided substantial quantities of meat, milk, grain, and vegetables to other republics. Likewise, its diversified heavy industry supplied the unique equipment (for example, large diameter pipes) and raw materials to industrial and mining sites (vertical drilling apparatus) in other regions of the former Soviet Union (Bershidsky, 2016). The collapse of USSR was an integral part of the collapse of a bipolar post-war world system (the end of 1980s the beginning of 1990s). Ukraine s independence was declared on 24 August The Act of Declaration of Independence of UA was adopted by the Ukrainian parliament. The Act established Ukraine as an independent state. This Act was adopted in the aftermath of the coup attempt on 19 August 1991, when conservative Communist leaders of the USSR tried to restore central Communist party control over the Soviet federation (Magocsi, 2010, pp ). The Act passed with 321 votes in favour, 2 votes against, and 6 abstentions (out of 360 attendants) (Lapychak, 1991). Ukrainian parliament called for a referendum on support for the Declaration of Independence, too (Magocsi, 2010, pp , Lapychak 1991), voted for the creation of a national guard of UA and turned jurisdiction over all the armed forces located on Ukrainian territory over to itself. It was one of several important factors of a future splitting of the USSR. A successor entity to it (the CIS) was founded only approximately three months later, on 8 December 1991 by three biggest Slavic Soviet republics - the Republic of Belarus, the Russian Federation, and Ukraine. The leaders of the three countries met in Viskuli, in the Belovezhskaya Pushcha Natural Reserve, about 50 km north of Brest in Belarus and signed the "Agreement Establishing the Commonwealth of Independent States", known as the Creation Agreement, on the dissolution of the USSR and the creation of CIS. At the same time, three leaders announced that the new alliance would be open to all Soviet republics, and to other nations sharing the same goals. The CIS Charter, adopted on 192

18 January 22, 1993 at a session of the Council of Heads of States at Minsk, stated that all the members were sovereign and independent nations and thereby effectively abolished the Soviet Union. Several weeks later, a CIS representation took part for the first time (as well as for the last time) in the Olympic Winter Games (XVI OWG in Albertville, February 8 23, 1992). (Albertville..., 2016) On 21 December 1991, the leaders of eight additional former Soviet Republics Armenia, Azerbaijan, Kazakhstan, Kyrgyzstan, Moldova, Turkmenistan, Tajikistan, and Uzbekistan signed the Alma-Ata Protocol which can either be interpreted as expanding the CIS to these states or the proper foundation or re-foundation date of the CIS (Plokhy, 2014), thus bringing the number of participating countries to 11. Georgia joined two years later, in December At this point, 12 former Soviet Republics (all except the Baltic States, which joined NATO and the EU in 2004) participated in the CIS. Between 2003 and 2005, three CIS member states experienced a change of government in a series of colour revolutions: president Eduard Shevardnadze (former Gorbachev s USSR Foreign Minister) was overthrown in Georgia; new president Viktor Yushchenko was elected in Ukraine; and president Askar Akayev was toppled in Kyrgyzstan. Turkmenistan has not ratified the CIS charter and changed its CIS standing to associate member as of 26 August 2005 in order to be consistent with its UN-recognised international neutrality status. In February 2006, Georgia withdrew from the Council of Defense Ministers, with the statement that "Georgia has taken a course to join NATO and it cannot be part of two military structures simultaneously", (Georgia opts out..., 2006) but it remained a full member of the CIS until August 2009, one year after officially withdrawing in the immediate aftermath of the Russo-Georgian War. It was evident that CIS is not functioning efficiently. In March 2007, Igor Ivanov, the secretary of the Russian Security Council, expressed his doubts concerning the usefulness of the CIS, emphasising that the Eurasian Economic Community was becoming a more competent organisation to unify the largest countries of the CIS. (Russia questions..., 2007) In May 2009, during the Czech presidency in EU Council, Armenia, Azerbaijan, Belarus, Georgia, Moldova, and Ukraine joined the EU Eastern Partnership, then a new European Union initiative. The CIS is a loose association of states. The CIS was alliance of several ex-soviet republics, not a real integration unit, until the CIS Free Trade Area (CISFTA) creation. Russia s strategic goal was evidently to reintegrate this disintegrated former 193

19 Soviet national economy (of course, excluding three Baltic states). Russian policymakers left the door open at an early stage for the CIS to become a basic building block for regional integration. The CIS Charter, which replaced the original Creation Agreement in January 1993, foresaw the need for a common economic order that permitted the free movement of goods, services and people, and the harmonisation of economic policies to create favourable direct production links between member states. Although the CIS has few supranational powers, it aims at being more than a purely symbolic organisation, nominally possessing coordinating powers in the realm of trade, finance, law-making, and security. It has also promoted cooperation on cross-border crime prevention. Furthermore, eight of the nine CIS member states participate in the CIS Free Trade Area, and five of these form the Eurasian Economic Union, a customs union and single market of over 180 million people (Russia, Kazakhstan, Belarus, Armenia and Kyrgyzstan). 19 In addition, six member states participate in a mutual defence alliance: the Collective Security Treaty Organization. UA had a very specific relationships to the CIS from the very beginning. UA never ratified the CIS Charter. Thus, it does not regard itself as a member of the CIS. Nevertheless, UA took part in all important summits of the CIS and was considered as a CIS participating country but not the member. Nine full members were left in the CIS - Armenia, Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan and Uzbekistan. However, simultaneously, thanks to free trade regime motivating factor, UA had a very specific flexible exogenous integration to CIS. Although Russia did not succeed to coerce or entice UA into the EEU, it finally succeeded in signing a CIS-wide FTA on 18 October 2011 with most of the post-soviet countries including UA. This 2011 CISFTA replaced the 1994 CISFTA, which in fact has never worked. The 2011 CISFTA entered into force on 20 September 2012 for Russia, Belarus and Ukraine, on 17 October 2012 for Armenia, on 8 December 2012 for Kazakhstan and on 9 December for Moldova (Loo, 2016, p. 135). 19 Eurasian Economic Union (EEU) was established on 29 May 2014 in Astana and the treaty establishing this new integration unit came into force on 1 January On 2 January 2015 Armenia joined EEU and on 6 August 2015 Kyrgyzstan, too. 194

20 2.1 Low efficiency of the Ukraine s flexible exogenous integration to the Commonwealth of Independent States since CISFTA creation Ukraine was one of three founders of the Commonwealth of Independent States (CIS), together with the Russian Federation and Belarus, in Instead, it was a club whose members merely exchanged views. This alliance, a future integration unit CISFTA (not very well functioning, too), replaced the Union of Soviet Socialist Republics (USSR or Soviet Union). Although UA was one of the founding countries and ratified the Creation Agreement in December 1991, UA chose not to ratify the CIS Charter as it disagrees with Russia being the only legal successor to the Soviet Union. In 1993 UA became an "Associate Member" of CIS (D Anieri, 1999). For an increasing part of Ukrainian politicians, parties, experts as well as population, the CIS was not a platform for effective and mutually beneficial cooperation. The CIS was considered as virtually moribund and more as a political organisation. Only a tiny percentage of the agreements its members have signed since its inception in late 1991 have been implemented. On 20 August 2008, Foreign Minister of Ukraine Vladimir Ogryzko said "The name of CIS envisages unity, friendship, but it should be analyzed whether this friendship is real or a curtain", said the minister and mentioned that Ukraine was not the member of CIS. "Ukraine is not the member of CIS Economic Court, has not ratified the Statute of CIS, that's why Ukraine can not be considered member of CIS in terms of international law. Ukraine is only a participating country, but not the member", he said. (Commonwealth of Independent States, 2014) By contrast, subsidiary organisations and integration projects such as the CIS Collective Security Treaty Organization, which numbered only six members, and the Single Economic Space (being considered as a common market integration stage) have proven more effective in promoting specific interests. On March 14, 2014, a bill was introduced to UA's parliament to denounce their ratification of the 1991 Agreement Establishing the CIS, following the Russian military intervention in UA and annexation of Crimea, but was never approved. (Bill introduced..., 2014) Following the 2014 parliamentary election, a new bill to denounce the CIS agreement was introduced. (Proekt Zakonu pro zupynennya..., 2014) Later, in September 2015 the Ukrainian Ministry of Foreign Affairs confirmed UA would continue taking part in CIS "on a selective basis". Since that month, UA has no representatives in the CIS Executive 195

21 Committee building. (Ukraine to selectively..., 2015) UA shares some similarities with the CIS non-member states, but also some dissimilarities, mainly linked to the sheer fact that the country is sandwiched between Russia and the EU. Costs and benefits for UA trade is very important. International trading and namely UA s export success is one of key factors influencing the country s economic and social development. The openness index for it as measured by the sum of exports and imports over UA s GDP exceeds 100 percent (Vinhas Havrylyshyn, 2006, p. 165). Moreover, there were many traditional trade and production linkages with the national economies of the CIS countries ex-soviet republics. That is why Ukraine supported this flexible exogenous integration to the CIS through CISFTA since 20 September 2012 until DCFTA with European Union came into force on 1 January Efficiency of this more than 3 years UA-CIS flexible exogenous integration was not very high. Ukraine was permanently in a very special situation: a traditional predominant economic cooperation continuing within the post- Soviet economic space without any important needed reforms on one side, in parallel with a state of CIS non-membership a participating member or associate member only. In addition: the CIS free trade area was built in two steps, only the second one was successful. The parallel internal economic factors development (characterised by stagnations or crisis), an oligarchic structure of UA national economy as well as tensions with Russian neighbour were not very supportive to the efficiency increasing of this UA-CIS flexible exogenous integration during the last several years, too. 2.2 Efficiency potential of the Ukraine s flexible exogenous integration to the European Union since 2016 According to the Ukrainian president Petro Poroshenko s assessment of this 27 June 2014 "It is one of the most historic days since reaching the independence". (Rozšíri sa EÚ? 2014) EU party described this as UA's "first but most decisive step" towards EU membership. (Pifer, 2014) This AA lacks a membership perspective; nevertheless, it is sweeping. In a private meeting in 2013, the foreign minister of one Central European member of the EU said that if Ukraine fully implements the AA, it would be more ready for membership than my country was when it joined in (Pifer, 2014) 196

22 Of course, it is necessary to be very realistic: a new president of European Commission Jean-Claude Juncker declared the pause in the EU enlargement at the beginning of his first term for his mandate period. He told the Members of European Parliament: "Over the next five years, there won't be any new member states acceding to the European Union". (Scottish independence..., 2014) Nevertheless, the association agreement (AA) can be a game-changer for Ukraine. It included the DCFTA that will open much of the EU internal market, this famous integrated Béla Balassa s common market, to Ukrainian exports (Balassa, 1966, pp , ). Figure 3 EU flexible exogenous integration forms Legend: EU 28 is representing existing developing integration unit. Although now in a deep crisis, it is still the most recognised integration unit within the world economy. Turkey, as well as a parallel wave of European integration EFTA (without Switzerland), Switzerland itself, Israel as well as Ukraine they are representing EU partners being with this mainstream European integration unit in the flexible exogenous integration: on a free trade area level (Israel, in the framework of Barcelona process after 1995 on the basis of EU-Israel Euro- Mediterranean Association Agreement, ratified in 1995, and now this process of EU-UA FTA integration level implementation starting by Ukraine after EU-UA DCFTA came into force on 1 January 2016), on a customs union level (Turkey since the end of 1995, before it was free trade area integration with then European Communities according the 1970 Protocol to the Ankara Association Agreement of 1963) and on a free trade area as well as common market levels (EFTA 3 without Switzerland, forming with EU 28 nowadays European Economic Area (EEA) of 31 member countries, and in the framework of a special Swiss model of integration based namely on 17 bilateral sectoral agreements (BSAs) with European Union Switzerland (CH) itself. The first EU-CH bilateral sectoral agreement was EU-CH FTA of 1972, coming into force at the beginning of 1973, later in 2002 the additional 7 BSAs were negotiated and approved and in 2004 other 9 BSAs, too. In 2005, one partial Swiss 197